Europe’s New Airline Carbon Fee to Translate to Fare Hikes

January 1stmarked the launch of a new European Union law requiring carbon emission offset payments for all flights in and out of Europe. Not popularly received by airlines outside of Europe, who’ve expressed resistance to the additional charges (a handful of major Chinese airlines said they wouldn’t pay the fees, and were threatened with a ban from European airports), European-based airlines held similar sentiments, complaining that the carbon fee and cap requirements were asking too much too soon. U.S. airlines were likewise opposed, but since boycotting lucrative European markets simply isn’t an option, they’ve opted to implement fare hikes to cover the carbon cost – all in all, ticket prices for travel to, from, and within European markets are shaping up to average an increase of an estimated 3 percent.

A recent Bloomberg article suggested that the new fees could translate to anywhere from $15 to $17 on a standard flight from NYC to London (while other industry analysts have predicted spikes of as much as $50 to $90 on transatlantic routes). So far, we’ve seen Delta and United both add a digestible $3 per passenger surcharge on its one-way transatlantic flights, as of last week.

Meanwhile, the U.S. is considering imposing a retaliatory fee on any European airlines entering U.S. airports. It all seems like messy politics, but the truth is, the new airline carbon fee is proving to be a good policy – not just for environmental insurances, but for airline coffers, too.

The aviation industry accounts for 3 percent of carbon-dioxide emissions on the planet and is one of its fastest-growing sources. A World Bank report estimated that the implementation of such an airline carbon fee would raise ticket prices by about 2 to 4 percent, but cause emissions to fall by 5 to 10 percent since fewer people would fly, airlines would strive for more efficient routing, and older, environmentally unfriendly planes would be taken out of commission. Overall, the new European plan requires airlines to buy into Europe’s cap-and-trade system, with targets of reducing emissions 3 percent by 2012, and 5 percent by 2020.

Plus, new U.S. Federal Aviation Administration-funded studies have indicated that the EU carbon law could boost U.S. airline profits – by as much as $2.6 billion by 2020, in fact – since U.S companies were likely to pass on the full cost of the carbon emission permit fees to passengers, even though the current implementation plan grants 85 percent of their emission fees free of charge for the first few years.